Finally going to invest, brother is FA

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Oyjonsan
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Finally going to invest, brother is FA

Post by Oyjonsan » Wed Jan 31, 2018 11:49 pm

Ok here it goes..
Wife and I have 401ks that we contribute enough to to get the company match. There is a mix between index funds and mutual funds (and bonds), and between the two we have about $100k. The rest of our money >$150k is sitting in a checking account (please don’t yell).

I just got a sizeable inheritance too from my grandparents, some of which is in an IRA. I’m going to invest a lot of our money soon, and considering a few options.

I’ve read a lot about investing the past year and feel like I’ve gained a lot of knowledge. Everyone here will say three fund portfolio (or something ideologically similar) and I see how that’s a good conservative choice for long term wealth accumulation. Low fees and guaranteed to track the market. My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).

That’s the background, I would love to know what you guys think I should do with my cash. For one, I’m leaning towards 2 Roth IRAs for my wife and I, which we would max out for 2017 and 18. Also thinking about a taxable brokerage account for the rest of my cash. I would open an inherited ira and slowly take out the money (mandatory) which would be used to fund IRAs in later years. I will also likely start contributing more to 401ks and possibly HSAs. Ok, now where to invest..

I can get discounted prices on mutual funds through my brother, including nav price (no loadings) and can either go with a fee based or commission based account. Fee based is 1.12% annual, and commission is .7% for every mutual fund or etf I buy (one time cost per fund). If I just buy index or low fee mutual funds, and larger stocks I plan to hold for a very long time, it seems like the commission based IRAs would only be the fees associated with the funds (unless I decide to change mutual funds, which then would cost me another .7%).

I think I’ll leave it there for now in hopes that a few people can make it to the end of the post. Hopefully the replies can drive the conversation further.

I’ll add this food for thought..Looking at the (easily) available data, the mutual funds in our 401ks have been outperforming the index funds even after fees (3, 5, and 10 year). Also, don’t actively managed mutual funds give you some shelter during volitale times?

Thanks for reading!

MikeG62
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Re: Finally going to invest, brother is FA

Post by MikeG62 » Thu Feb 01, 2018 7:47 am

Oyjonsan wrote:
Wed Jan 31, 2018 11:49 pm
...My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).

...I’ll add this food for thought..Looking at the (easily) available data, the mutual funds in our 401ks have been outperforming the index funds even after fees (3, 5, and 10 year). Also, don’t actively managed mutual funds give you some shelter during volitale times?

Thanks for reading!
I would simply tell my brother I won’t do business with relatives (or friends). Too much risk of your relationship with him being damaged should something not go well with the investing experience. If he is a reasonable person, I think he’ll understand. If he doesn’t, he’ll get over it.

With regard to your other comment/question, are you sure you are comparing those actively managed funds to the correct index/benchmark? Don’t just compare to the index the MF company indicates. Make sure it is the right index. Also, actively managed MF’s don’t necessarily provide better shelter during volatile times - some might others don’t. You can see this by going back and looking at their performance during 2008 (if you can get your hands on that data).
Real Knowledge Comes Only From Experience

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Makaveli
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Re: Finally going to invest, brother is FA

Post by Makaveli » Thu Feb 01, 2018 7:49 am

Emotions aside, what does your brother bring to the table?

From someone who worked in the finance industry I was able to grow past the Boglehead dogma of No-FA ever. Some situations call for a FA, whether that be hourly or fixed %. Based on your message, I believe your situation is simple enough to handle yourself. If items become more complex then I'd consider getting help.

Good call on getting the plan started.

RRAAYY3
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Re: Finally going to invest, brother is FA

Post by RRAAYY3 » Thu Feb 01, 2018 8:03 am

Do it yourself

My friend was my financial advisor for 3 years, until I started looking into things myself - fees and such

It was a very very awkward conversation. We’re fine now, but he took it personally - I even put something in writing for him to give his employer, basically saying this was based purely on fees/expenses and not his actual performance.

It was awkward - and unnecessary. Don’t get your brother involved if he doesn’t have to be.

Buy total us / int’l index funds and learn to enjoy how boring investing can actually be (it’s not as scary as you’d think)

[max out Roth ASAP and enjoy the tax free compounding]

Olemiss540
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Re: Finally going to invest, brother is FA

Post by Olemiss540 » Thu Feb 01, 2018 8:14 am

I would use that money to maximize your 401k and HSA contributions from now on. Make sure you max your 2017 HSA before April as well.

You seem pre-set on going a different approach for your taxable investing than anyone here would recommend but you might do some studying on Tax efficient fund placement before you move forward.

Broad market index funds are very tax efficient and usually kickoff 1-2% qualified dividends every year (which are taxed). If you end up investing in a active mutual fund that kicks off non qualified dividends, fixed income, or a much higher rate of qualified dividends, you will end up paying much more in taxes every year just for using those investment vehicles.

I would personally just pick "Total Stock Market" TSM and shove all the leftover money in there for the next 30 years. Good luck and hope the relationship with your brother is not compromised if you insist with investing through him.....
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

livesoft
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Re: Finally going to invest, brother is FA

Post by livesoft » Thu Feb 01, 2018 8:33 am

Open your eyes!

If you want to destroy your relationship with your brother, then go ahead and use him for your financial advisor.

How about this: How would you like to know all about your brother's finances and investments and everything else about his financial life?

The fact that you are posting on bogleheads.org shows that you already know better than to do that.
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in_reality
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Re: Finally going to invest, brother is FA

Post by in_reality » Thu Feb 01, 2018 8:42 am

The relationship with your wife, and the well-being of your most loved one is everything.

What’s best for her is also best for you.

Please honestly decide with her in mind. It will be the right decision!

JW-Retired
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Re: Finally going to invest, brother is FA

Post by JW-Retired » Thu Feb 01, 2018 8:46 am

Oyjonsan wrote:
Wed Jan 31, 2018 11:49 pm
I can get discounted prices on mutual funds through my brother, including nav price (no loadings) and can either go with a fee based or commission based account. Fee based is 1.12% annual, and commission is .7% for every mutual fund or etf I buy (one time cost per fund). If I just buy index or low fee mutual funds, and larger stocks I plan to hold for a very long time, it seems like the commission based IRAs would only be the fees associated with the funds (unless I decide to change mutual funds, which then would cost me another .7%).
The % fees you are talking about above are plenty bad enough to have a terrible long term effect on your wealth. "Discounted" fees or commissions is not something you should be shopping for. What you need to be paying is no fees at all except the 0.05% - 0.1% sort of fees from index funds. Open an account at Vanguard or Fidelity where the fees will be trivial.

Suggest this mini-book by William Bernstein for starting investors. https://www.etf.com/docs/IfYouCan.pdf for free, or also on Amazon if you want a hard copy or kindle copy.

IMO, investing through family is the scariest thing in your post. If/when you wise up to the investing cost hurdle it may be quite painful to unwind things.
JW
www.buyupside.com/calculators/feesdec07.htm
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tibbitts
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Re: Finally going to invest, brother is FA

Post by tibbitts » Thu Feb 01, 2018 8:57 am

I've somewhat learned from experience that it's best to avoid doing business with people when you already have a personal relationship. Obviously a lot of amazing business wouldn't have ever been started if everyone felt that way, but ... just saying what has/hasn't worked for me.

goblue100
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Re: Finally going to invest, brother is FA

Post by goblue100 » Thu Feb 01, 2018 8:59 am

Performance is up and down. Some active funds outperform their index counterparts, until suddenly they don't. The longer the time period, the better passive funds do. At 15 years, passive funds outperform 90% of their active counterparts.
https://www.cnbc.com/2017/04/12/bad-tim ... years.html

If you pay 1% more a year in expenses (you said the ongoing er is 1.12%, you can easily get index funds at .08%), in 30 years you will be missing 25% of your money. Scroll to the table at the bottom of the article:
https://vanguardblog.com/2011/10/28/sto ... f-returns/

If you still want to go with your brother, at least you have been forewarned. Don't kid yourself with stories of how the active funds will more than make up for their higher fees, because at 15 years the odds say they won't.
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

Jack FFR1846
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Re: Finally going to invest, brother is FA

Post by Jack FFR1846 » Thu Feb 01, 2018 9:06 am

Edward Jones requires their salesmen to go after family members first. Remember also that your brother will have zero input on what investments you would be put into....that's done by the mother ship. I would recommend that if you feel immense pressure, simply write your brother out a check for $10k as a gift every year. It'll be cheaper and he'll keep more of it than would be paid in commission.

Here's how EJ operates. It's very long.

http://kronstantinople.blogspot.com/p/e ... -saga.html
Bogle: Smart Beta is stupid

ThriftyPhD
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Re: Finally going to invest, brother is FA

Post by ThriftyPhD » Thu Feb 01, 2018 9:11 am

On top of all of the above reasons why you shouldn't do business with your brother, consider the 'deal' you're getting on the EJ fees. What happens in 5-10 years if your brother gets a job at a different company, is fired, or leaves for some other reason? Would the fees go higher? Would there now be an exit fee if you choose to leave? If you have your taxable brokerage account there and they put it in proprietary funds, would you need to sell to get your money rather than being to transfer in kind to a new brokerage?

finite_difference
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Re: Finally going to invest, brother is FA

Post by finite_difference » Thu Feb 01, 2018 9:13 am

Run, do not walk, away from Edward Jones.

If your brother needs help, recommend giving him a gift of money and help finding a new job.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Lafder
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Re: Finally going to invest, brother is FA

Post by Lafder » Thu Feb 01, 2018 9:15 am

Another vote to stay clear of investing with your brother. Brother aside, EJ is amongst the higher fee companies, and the "deal price" is no deal.

First decision, what is your risk tolerance and what is your desired asset allocation? That will help you decide what percent of your holdings need to be in what type of investment.

In general there is a rec for age in bonds down to age - 15 in bonds.

You can read more here https://www.bogleheads.org/wiki/Getting_started

Another consideration is if you have any debt that the inheritance could go towards paying off? If there are non retirement accounts in the inheritance, they can be used to remove debt, and then the amount you are using for payments can be invested each month.

Take the time to list all of your holdings like this, including debt and we can talk in more detail , this is a good time to looka t your retirement accounts viewtopic.php?f=1&t=6212

It might be worth maxing your work retirement accounts and using some inheritance for money to live on if needed, to max the pretax investments.

lafder

NotWhoYouThink
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Re: Finally going to invest, brother is FA

Post by NotWhoYouThink » Thu Feb 01, 2018 9:19 am

I’ll add this food for thought..Looking at the (easily) available data, the mutual funds in our 401ks have been outperforming the index funds even after fees (3, 5, and 10 year). Also, don’t actively managed mutual funds give you some shelter during volitale times?
Why did they outperform? Because they were actively managed, or because they were concentrated in risky sectors? Can you list the funds?

This brings up a very good point. It is certainly possible for actively managed investments to perform better than a typical bogleheads-recommended 3-fund portfolio. It happens because actively managed funds take more risk. So your decision is whether to take on more risk, which will perform better in boom times and worse in bad times, or stay the course with passive index funds and bond funds that meet your risk tolerance. It means taking responsibility for your own investment decisions instead of handing it off to "your guy".

But no, actively managed funds seldom give you shelter during volatile times. More often that's exactly when they let you down.

Also, your brother at EJ might be able to tell you what funds he'd put you in today. And if you look back over the last 3,5,10 years, those funds would have done great. But they aren't the funds he would have put you into 3,5, and 10 years ago. The funds he would have put you in then are the ones that looked good in a back-test back then, and wouldn't look so good in a backtest today. It's just their business model.

SimplicityNow
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Re: Finally going to invest, brother is FA

Post by SimplicityNow » Thu Feb 01, 2018 9:19 am

Investing through your brother is a bad mistake. The reasons have been detailed in the posts above.

It is the equivalent of taking a portion of your money and giving it to your brother every year. If that is what you want to do then just write him a check every year. Don't forget to increase the size of the check every year too as your portfolio gets bigger! I really don't know how it puts you in a predicament. If your brother got a bonus at work would you expect him to give you a cut? No? I didn't think so. It is your money (and your wife's and eventually maybe even your children). Do what is best for you, not him.

I suggest you search this forum for EJ and read all the threads and posts.

Jags4186
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Re: Finally going to invest, brother is FA

Post by Jags4186 » Thu Feb 01, 2018 9:20 am

Yea I'll echo the above...best way to avoid any awkwardness is to not start doing business with your brother in the first place.

"I think it would be best if we didn't work together because if something went wrong I wouldn't want it to affect our relationship." If he pushes you could add that "If the stock market crashed, which is no fault of your own, I don't think I could mentally separate you from the situation." If he continues to push, he is your brother, tell him to back off and maybe throw in a few punches. My guess is he won't be at EJ for the long haul anyway.

To answer your last question, actively managed funds can either outperform, market perform, or under perform. In a market decline they can go down less than their benchmark, the same, or more. Same thing in a bull market. They can perform the same, more, or less than their benchmark. But they almost always have higher fees which makes it that much harder to out perform. For example if you have a actively managed large blend fund with an expense ratio of 1% compared to Vanguards S&P500 fund at 0.04%, the active manager has to deliver .96% out performance (alpha) just to match the Vanguard funds performance. Take a 30 year time horizon and see how much additional money .96% year after year would give you. Are you willing to gamble that much money on an active fund manager doing better than .96%?

ShenziNation

Re: Finally going to invest, brother is FA

Post by ShenziNation » Thu Feb 01, 2018 9:26 am

I gave my brother advice on investing. Told him to open a Vanguard account and stick in a lazy portfolio or a Target Date fund. Easy!

GLState
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Re: Finally going to invest, brother is FA

Post by GLState » Thu Feb 01, 2018 9:32 am

Active funds don't help in bad markets See the Standard & Poors SPIVA report from 2008.
http://www.spindices.com/documents/spiv ... d-2008.pdf

 The belief that bear markets favor active management is a myth. A
majority of active funds in eight of the nine domestic equity style
boxes were outperformed by indices in the negative markets of 2008.
The bear market of 2000 to 2002 showed similar outcomes.

bloom2708
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Re: Finally going to invest, brother is FA

Post by bloom2708 » Thu Feb 01, 2018 9:32 am

Thanksgiving and Christmas family dinners will never be the same.

Do not use your brother as your advisor. Do not use Edward Jones as your broker.

The only worse scenario would be if you borrowed money from your parents and THEN used that to invest with your brother at EJ. The borrower, lender and expensive advisor all sitting down to share a meal. All kinds of awkward.

http://www.dinkytown.net/java/CompareFees.html

Play some scenarios with this tool and check out the long term impact of 1.5% or 2.0% fees over 20, 30, 40 years. Mind blowing numbers. Our cost is .07% at Vanguard across all our accounts. Use .07%, 1.5% and 2.0%. EJ probably falls between 1.5 and 2.0 when all is said and done.

If I take our current portfolio and compare .07% to 2.0% over 20 years, with 4% return, $1,500 new per month, the difference is over $900,000. Almost $1 million more. :shock:
Last edited by bloom2708 on Thu Feb 01, 2018 10:16 am, edited 1 time in total.
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Strayshot
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Re: Finally going to invest, brother is FA

Post by Strayshot » Thu Feb 01, 2018 9:41 am

Congratulations on finding the double whammy of bad investing! Investing with close family and investing with Edward Jones. Destroy family relationships and ALSO your retirement? Yes please!
On the bright side it could be worse, you could have a sibling who is an insurance salesman peddling whole life to you as well............

Kindly tell your brother that you have thousands of FA’s on the internet who are already helping you invest but you wish him the best in screwing others out of their money :sharebeer

Miakis
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Re: Finally going to invest, brother is FA

Post by Miakis » Thu Feb 01, 2018 9:48 am

I'm a CPA and none of my family members or my husband's family members are my clients. I don't suppose I would refuse them if they asked, but none have.

It's really not that uncommon for family members to keep their finances private from each other.

If he pushes it, and he might, because Edward Jones seems to encourage this type of behavior, just say that you prefer to keep family and finances separate. Then remind yourself that for most financial services, it's totally typical not to hire your family member. It's really only Edward Jones that encourages it. You're not doing anything wrong or out of the ordinary by not hiring your financial advisor brother.

I would not tell him that you get all of your financial info from the internet (that lacks context and will make him concerned), or that he's screwing people over (bad blood). The fewer the details, the better. There is also no reason for your brother to know exactly how much money you have or what you're doing with it.

NotWhoYouThink
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Re: Finally going to invest, brother is FA

Post by NotWhoYouThink » Thu Feb 01, 2018 10:00 am

Most EJ advisors don't last long. They have to bring in lots of new clients to stay in business, and it's very difficult for most people. So feel confident when you tell him "thanks but no thanks" that he'll probably be out of the business before long anyway.

ShenziNation

Re: Finally going to invest, brother is FA

Post by ShenziNation » Thu Feb 01, 2018 10:02 am

Strayshot wrote:
Thu Feb 01, 2018 9:41 am
Kindly tell your brother that you have thousands of FA’s on the internet who are already helping you invest but you wish him the best in screwing others out of their money :sharebeer
The best FAs who provide FREE ADVICE. No fees, zero commisions. Never have, never will. Can he match that?
Miakis wrote:
Thu Feb 01, 2018 9:48 am
I'm a CPA and none of my family members or my husband's family members are my clients. I don't suppose I would refuse them if they asked, but none have.

It's really not that uncommon for family members to keep their finances private from each other.
My wife's a CPA. When asked for advice by family and close friends, she gives generic advice, pointing to IRS rules/forms. And then says every case is unique so to talk to their accountant.

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EyeYield
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Re: Finally going to invest, brother is FA

Post by EyeYield » Thu Feb 01, 2018 10:28 am

My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).
predicament
noun - A situation, especially an unpleasant, troublesome, or trying one, from which extrication is difficult.

You have the power and it's your choice, so any predicament you find yourself in will be of your own making.
Don't blame your brother.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

terran
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Re: Finally going to invest, brother is FA

Post by terran » Thu Feb 01, 2018 10:51 am

"Sorry bro, I don't think it's a good idea to mix business and family. I value our relationship as brothers too much to risk that."

And just to be clear, I'm sure he's a good guy and everything, but your brother is not a financial advisor, he's a salesman. Nothing wrong with that as long as he's comfortable with the product he sells, but that's what he is. Just because your brother sells questionable used cars doesn't mean you have to buy one when you want to buy a newer more reliable car.

barnaclebob
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Re: Finally going to invest, brother is FA

Post by barnaclebob » Thu Feb 01, 2018 11:01 am

Tell your brother that you don't want to have any chance of feeling resentment if the market goes down and he was supposed to help protect you from that.

Andyrunner
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Re: Finally going to invest, brother is FA

Post by Andyrunner » Thu Feb 01, 2018 11:03 am

As others would say, dont mix family & business.

If he expresses concern or is upset tell him: Over the past year you have taken a strong interest in personal finance and based on what you have learned you could manage your money yourself. Not only will it allow you to apply your interest but continue to strengthen your drive to continue to learn. If he explains he has access to more resources and information than you, argue that he has multiple clients to manage and need to allocate his knowledge and time between them all, but you only have one client to manage, yourself, therefore you can dedicate your time and effort to that single client. Let him know that if you have any questions you'll be willing to bounce ideas off of him for feedback and you two can both learn off of each other.

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nisiprius
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Re: Finally going to invest, brother is FA

Post by nisiprius » Thu Feb 01, 2018 11:09 am

My own experiences and those of my family and friends convinces me that it is always a mistake, frequently a bad mistake, to get any kind of professional service from anyone you know well.

Think about how often you've used a professional for a while and then just changed your mind and gone to another one, nothing definite, just whim or personal preference... or convenience of location, maybe your brother lives twenty miles away and there's Fidelity storefront in your town. And how much time ends up getting spent at Thanksgiving talking shop instead of paying attention to the adorable nieces.

Sooner or later something your brother recommends will go down when something your friends at work have been recommending goes up... he may be right and your friends may be wrong, but... it's still a problem.

TIAA was great, Fidelity was great, but I just happened to prefer Vanguard, and when I decided to move my assets from them to Vanguard I didn't have to worry about hurting a brother's feelings.

A family member once worked for a company that had an appliance division. Employees and their family members could get an employee discount. He was very insistent that we take advantage of that. So for twenty years we bought appliances from that company. In fact its appliance division was in decline, kept sliding down the Consumer Reports reliability list, and we had problems with every appliance we got from them, but had to suffer in silence to avoid hurting his feelings. Thank god the crappy dishwasher finally broke again so that we could replace it with a Bosch...

A friend's mom used a friend as a personal physician. She got terminal cancer and now, in all the flurry of emotions dealing with a difficult situation, in addition to relatives and friends, her kids were now faced with the issue of her doctor feeling guilty about not having spotted it sooner and her doctor having a different opinion from the kids about when she should be told and how much. Seriously, in a situation like that you do want the extra burden of considering the doctor's personal feelings.
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BL
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Re: Finally going to invest, brother is FA

Post by BL » Thu Feb 01, 2018 11:15 am

EyeYield wrote:
Thu Feb 01, 2018 10:28 am
My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).
predicament
noun - A situation, especially an unpleasant, troublesome, or trying one, from which extrication is difficult.

You have the power and it's your choice, so any predicament you find yourself in will be of your own making.
Don't blame your brother.
Just think of that "predicament" X 100 when you are ready to eventually divorce your brother "adviser". Search for threads with "leaving EJ", to find out the discomfort of leaving a "friend", and then think about how much worse it would be with a family member whom you can't "divorce".

You should take some time to decide what to do (see "windfall" in the Wiki). Do you have debts? Consider using funds to live on if needed to max (18.5k) 401ks and Roth IRAs. Look for low-ER index funds of US stock, maybe international, and bonds.

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Pajamas
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Re: Finally going to invest, brother is FA

Post by Pajamas » Thu Feb 01, 2018 11:23 am

Best course in this situation would be to tell your brother that you intend to do it yourself but are willing to listen to any advice that he has. Then take that advice with a grain of salt because even though he would presumably have your best interests in mind, he has a certain mindset by virtue of being a financial advisor working for percentages and commissions and cannot be objective.

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EyeYield
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Re: Finally going to invest, brother is FA

Post by EyeYield » Thu Feb 01, 2018 12:18 pm

A friendly, respectful way to involve your brother in your investing life would be to tell him that you think you've found a way that's best for you and ask him if he can find any problems with it.
Then give him this link: https://www.bogleheads.org/wiki/Main_Page

I did this once with my Fidelity advisor's assistant who kept calling me to come in for my annual checkup and wanted to turn me over to his options desk so I could hedge a position that had soared to 10% of my portfolio.

I told him I was Boglehead and left it at that. After he fumbled on his computer for a few minutes, he responded, "it's a cult?"
Trying to mask my displeasure with that comment, I replied that, yes, I guess it is.
I asked him to read the wiki and to please get back to me if he found any problem with it ASAP so I could come in and discuss his concerns and maybe he could help me leave the cult.
I never heard from him again.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

Oyjonsan
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Re: Finally going to invest, brother is FA

Post by Oyjonsan » Thu Feb 01, 2018 4:05 pm

Wow, did not expect this many responses within such a short time. I enjoyed reading through everyone's thoughts, and I believe it is an understatement to say the community is unanimous.

My brother is one of my best friends (I know, this is exactly the reason I shouldn't invest with him) so I truly believe he will do his best with my money. As many of you pointed out though, the effect of compounding fees is enormous. However I will ask this, if I have an actively managed portfolio, can I not expect to get 1% more than the market? Maybe that is in the WIKI..

I want to show everyone two of the hypothetical portfolios that were computed for a period going back to 2001 (hopefully the images work).

Image
Image
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The first portfolio includes the 1.08% annual fee (sorry I got it wrong before). However, I could have had the account where only .7% one time charge for commission would apply. I know these numbers are probably irrelevant, and as many of you said "you shouldn't be trying to reduce fees, you should not pay fees". As you can see, the first portfolio has a lot of actively managed index funds mixed with some stocks. The second has pretty much all index funds with the same stock. I'm curious to know if there are glaring assumptions or inaccuracies in the data.

OK, one more scenario that you can tell me not to do..start a roth for both my wife and I through Vanguard, which we max out and also begin trying to max out 401k and HSA. I don't know exactly how much money we will have leftover after this (need to crunch numbers I know), but if it's a lot I would open a taxable account within Vanguard for most of it. Could I get away with buying some stocks through my brother with money I don't mind losing and try to hit a home run or is this ridiculous?

I do have one more question, which is the how to invest the $100k or so. Lump sum or dollar cost averaging?

Thanks for all the support and effort to help!

magicrat
Posts: 408
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Re: Finally going to invest, brother is FA

Post by magicrat » Thu Feb 01, 2018 4:20 pm

Oyjonsan wrote:
Thu Feb 01, 2018 4:05 pm
Wow, did not expect this many responses within such a short time. I enjoyed reading through everyone's thoughts, and I believe it is an understatement to say the community is unanimous.

My brother is one of my best friends (I know, this is exactly the reason I shouldn't invest with him) so I truly believe he will do his best with my money. As many of you pointed out though, the effect of compounding fees is enormous. However I will ask this, if I have an actively managed portfolio, can I not expect to get 1% more than the market? Maybe that is in the WIKI..

I want to show everyone two of the hypothetical portfolios that were computed for a period going back to 2001 (hopefully the images work).

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The first portfolio includes the 1.08% annual fee (sorry I got it wrong before). However, I could have had the account where only .7% one time charge for commission would apply. I know these numbers are probably irrelevant, and as many of you said "you shouldn't be trying to reduce fees, you should not pay fees". As you can see, the first portfolio has a lot of actively managed index funds mixed with some stocks. The second has pretty much all index funds with the same stock. I'm curious to know if there are glaring assumptions or inaccuracies in the data.

OK, one more scenario that you can tell me not to do..start a roth for both my wife and I through Vanguard, which we max out and also begin trying to max out 401k and HSA. I don't know exactly how much money we will have leftover after this (need to crunch numbers I know), but if it's a lot I would open a taxable account within Vanguard for most of it. Could I get away with buying some stocks through my brother with money I don't mind losing and try to hit a home run or is this ridiculous?

I do have one more question, which is the how to invest the $100k or so. Lump sum or dollar cost averaging?

Thanks for all the support and effort to help!
Anyone can easily cherry pick historical data.

I would imagine that most EJ advisors are someones best friend or sibling. That does not make it a good idea. He may be well intentioned with your money, but his "best" is likely to leave you with less money, and EJ with more.

The VAST majority of actively managed mutual funds underperform their benchmark after fees. No, you can not expect to do 1% better (if you could, and index investors are getting the market return, who is getting 1% less?)

Yes, Roths and 401ks are a good idea. Fill up tax advantaged spaces.

You can get away with anything you want, it's your money, and if you prefer to fork it over to your brother, that's your decision. Just don't delude yourself into thinking you're better off financially for doing that. Search around on this forum for threads on EJ and you will see what they are really about.

Lump sum or dollar cost - lots of threads on that. Mathematically, lump sum is better. But you need to be able to sleep well at night and stay the course if something wonky happens in the market right after you invest. Pick one either way and get after it.

NotWhoYouThink
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Re: Finally going to invest, brother is FA

Post by NotWhoYouThink » Thu Feb 01, 2018 4:35 pm

Putting together a list of holdings that would have done better than an arbitrary benchmark over an arbitrary time period is about as difficult as "predicting" the winner of Super Bowl XLVIII, XLIX, 50, or LI. Through the power of Google, or just a good memory, you can "pick" those winners. But how about Super Bowl LII? Well, you've got a 50/50 chance, at least. Now try for LIII, LIV, and LV. Probably you won't make the right picks. And probably neither an EJ Advisor, nor all the boffins in the great data center in St Louis will pick the funds that will outperform the S&P 500 over the next 15 years. It's really hard, and no one has ever stayed good lucky at it for long.

So for the part of your budget that you normally reserve for raffle tickets and lottery scratch-offs, you can fund your brother to pick an EJ-recommended portfolio for you. For the rest of the money that you and your family plan to live and retire on, stick with what you now know makes a lot more sense.

And after you've read enough to be confident in your logic, try to convince your brother to see the light. Poster livesoft has done that with a few EJ Advisors as a public service.

barnaclebob
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Re: Finally going to invest, brother is FA

Post by barnaclebob » Thu Feb 01, 2018 4:40 pm

Oyjonsan wrote:
Thu Feb 01, 2018 4:05 pm
However I will ask this, if I have an actively managed portfolio, can I not expect to get 1% more than the market?
No you can't expect this. If anything you can expect to trail the market on average by the ER of the fund. Compare the returns for "Growth fund of america" AGTHX which is a commonly recommended fund from EJ. That one has gotten lucky and pretty much matched the SP500 for the past 10 years. Go out 15 or 20 though and you'll be way ahead with AGTHX. What you don't see since then is that it has probably grown so big that its a closet index fund and is nearly impossible to out perform anymore.

I believe that your brother will do as good as he can with your money but unfortunately he doesn't realize hes standing on an iceberg in the middle of the Mediterranean offering you a place to sit for awhile.

bloom2708
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Re: Finally going to invest, brother is FA

Post by bloom2708 » Thu Feb 01, 2018 4:44 pm

OP, once your eyes are opened (to the effects of fees), they cannot be closed.

You are in the rationalization and discovery phases. There is a natural progression.

If you were a customer right now, you would find very little information about expense ratios, sales loads, 12-b1 fees and Advisory fees on your account at the website. It is all hidden. Out of sight, out of mind.

EJ salesman are also excellent at running down indexing. It is only their careers and income at stake. It would be like going to a Ford car dealer and asking them details about the Chevy you want down the street.

Best to research and not even make the start than start and then have to pull the plug when you are lying awake at night thinking of thousands of your dollars going out the door in fees. My EJ advisor was not my brother, but he was a pretty good friend. Fellow runner and I spent almost 3 years of "eye opening" time with him.

Pick Vanguard. Do it yourself. Let your brother sell to the "other guy". Family and close friends are easy targets but of the "relationship" and good feelings that come from "knowing" your advisor is a good guy and a standup person and out for the best for you and himself.

Tough stuff. Search "leaving Edward Jones" and read through the various threads. Good luck!
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

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BL
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Re: Finally going to invest, brother is FA

Post by BL » Thu Feb 01, 2018 5:01 pm

I haven't looked at this too closely, but usually when they compare to S&P 500, they skip the annual dividends and only use the NAV sales price to compare, and no one notices). If so, that is ignoring the 2%/year you usually get and re-invest from the S&P 500 fund. I may have it wrong here, but someone will correct me if wrong.

Since you are not convinced that mostly index funds are a good idea, I suggest you mostly wait and do some reading of books suggested in the Wiki. There is no point in doing something you don't believe will work. You won't stick with it, so it will be sold to change to something else. Some folks set aside 5% of their portfolio, but do not replenish it when there are losses, for the "fun" part, and do the simple, low-Expense Ratio, diversified, boring, mostly index portfolio for the rest.

Here is a short pdf with some good advice in a nutshell, by a recommended author. The general advice is worth reading:
https://www.etf.com/docs/IfYouCan.pdf

I am sure your brother would do the best he could for you, but all the funds that EJ sells are either high-ER or must have a fee attached to them. He can't change that, so he is also stuck with that. Also if he wants to earn that nice prize such as a trip, he will have to sell, sell, sell. EJ trains their people to sell, sell, sell, and don't worry if there is a lack of knowledge for the seller. A lot of folks starting out on the job don't last too long unless they are great at selling. They are expected to recruit friends and family to bring in more AUM to the company.

As someone mentioned, some American funds are not bad, unless you compare the ERs to index funds. But there may be either a load (class A) or a very high-ER Class C with larger 12b-1 kickbacks to the broker/brokerage. All of these drain the fund of gains so it has to be more risky to keep up. Sometimes the risk shows up.

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sunnywindy
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Re: Finally going to invest, brother is FA

Post by sunnywindy » Thu Feb 01, 2018 5:25 pm

Don't assume your brother will work there your entire investing life. If he leaves, then what?
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RRAAYY3
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Re: Finally going to invest, brother is FA

Post by RRAAYY3 » Thu Feb 01, 2018 5:57 pm

the 1 thing you can control with investments - fees. active management has proven time and time again it can't "beat the market" with consistency - so all you're really paying for is a middle man. it's boring, and when i talk to others about investing, i can see the look on their face is almost disappointment with how i suggest investing - it's not "exciting", it's slow / methodical , but it also works.

when i want excitement, i go snowboarding. I don't want "excitement" when it comes to retiring - i want it as simple and boring as possible.

I own 2 funds: those "boring" funds just happen to be comprised of approximately 10,000 companies around the globe.

TwstdSista
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Re: Finally going to invest, brother is FA

Post by TwstdSista » Thu Feb 01, 2018 6:00 pm

I have a dear friend who is a Financial Advisor (fee only). Makes a LOT of money. Matched the market last year.... Guess what? So did I, and I know nothing about investing.

RRAAYY3
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Re: Finally going to invest, brother is FA

Post by RRAAYY3 » Thu Feb 01, 2018 6:02 pm

FA are for 2 kinds of people:

1. You have no financial literacy whatsoever and don't know better.
2. You think it's cool being able to say "I'm meeting with my financial advisor".

Mr.BB
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Re: Finally going to invest, brother is FA

Post by Mr.BB » Thu Feb 01, 2018 6:07 pm

MikeG62 wrote:
Thu Feb 01, 2018 7:47 am
Oyjonsan wrote:
Wed Jan 31, 2018 11:49 pm
...My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).

...I’ll add this food for thought..Looking at the (easily) available data, the mutual funds in our 401ks have been outperforming the index funds even after fees (3, 5, and 10 year). Also, don’t actively managed mutual funds give you some shelter during volitale times?

Thanks for reading!
I would simply tell my brother I won’t do business with relatives (or friends). Too much risk of your relationship with him being damaged should something not go well with the investing experience. If he is a reasonable person, I think he’ll understand. If he doesn’t, he’ll get over it.

With regard to your other comment/question, are you sure you are comparing those actively managed funds to the correct index/benchmark? Don’t just compare to the index the MF company indicates. Make sure it is the right index. Also, actively managed MF’s don’t necessarily provide better shelter during volatile times - some might others don’t. You can see this by going back and looking at their performance during 2008 (if you can get your hands on that data).
+1 Doing business with family is a huge risk. Also, when you look at fund comparisons, make sure they include 2008 (10 yr). That info will soon disappear and those fund numbers for the 10 year are going to look better than what they really were (with 2008 included).
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Mr.BB
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Re: Finally going to invest, brother is FA

Post by Mr.BB » Thu Feb 01, 2018 6:10 pm

Here is a link to a simple but very effective expense ratio calculator. Put in those active funds expense ratios vs. index funds and check out what it will cost you over 20-30 years. Personally I am not against all active funds; I own a few myself, but they are excellent even over the long term. But make sure you do your homework with your numbers.

http://www.begintoinvest.com/expense-ratio-calculator/
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Grt2bOutdoors
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Re: Finally going to invest, brother is FA

Post by Grt2bOutdoors » Thu Feb 01, 2018 6:12 pm

Don’t mix money with family or friends and you’ll be fine. Do you like watching 1%+ of your assets disappear into thin air? The EJ is your place.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Doom&Gloom
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Re: Finally going to invest, brother is FA

Post by Doom&Gloom » Thu Feb 01, 2018 6:37 pm

Agree with the consensus. Do not do business with family. Someone will eventually become unhappy. Perhaps permanently and perhaps extremely unhappy.

It is much easier to give a polite "No. I do not want to mix business into our relationship" now than it will be to try to extricate yourself later.
If it comes to that.
And if you continue reading and learning here, it almost certainly will come to that.

Good luck!

epictetus
Posts: 503
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Re: Finally going to invest, brother is FA

Post by epictetus » Thu Feb 01, 2018 6:59 pm

I would suggest reading John Bogle's "Little book of common sense investing."
It is really eye-opening re: the impact fees have over the long run.
Focus on what you can control

longleaf
Posts: 153
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Re: Finally going to invest, brother is FA

Post by longleaf » Thu Feb 01, 2018 7:13 pm

Jack FFR1846 wrote:
Thu Feb 01, 2018 9:06 am
Edward Jones requires their salesmen to go after family members first. Remember also that your brother will have zero input on what investments you would be put into....that's done by the mother ship. I would recommend that if you feel immense pressure, simply write your brother out a check for $10k as a gift every year. It'll be cheaper and he'll keep more of it than would be paid in commission.

Here's how EJ operates. It's very long.

http://kronstantinople.blogspot.com/p/e ... -saga.html
Great find.

My BIL was an FA. Been there, done that. Won't do it ever again!
Frugality, indexing, time.

Dottie57
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Re: Finally going to invest, brother is FA

Post by Dottie57 » Thu Feb 01, 2018 7:57 pm

MikeG62 wrote:
Thu Feb 01, 2018 7:47 am
Oyjonsan wrote:
Wed Jan 31, 2018 11:49 pm
...My brother being an FA at EJ puts me in a bit of a predicament (emotionally and practically).

...I’ll add this food for thought..Looking at the (easily) available data, the mutual funds in our 401ks have been outperforming the index funds even after fees (3, 5, and 10 year). Also, don’t actively managed mutual funds give you some shelter during volitale times?

Thanks for reading!
I would simply tell my brother I won’t do business with relatives (or friends). Too much risk of your relationship with him being damaged should something not go well with the investing experience. If he is a reasonable person, I think he’ll understand. If he doesn’t, he’ll get over it.

With regard to your other comment/question, are you sure you are comparing those actively managed funds to the correct index/benchmark? Don’t just compare to the index the MF company indicates. Make sure it is the right index. Also, actively managed MF’s don’t necessarily provide better shelter during volatile times - some might others don’t. You can see this by going back and looking at their performance during 2008 (if you can get your hands on that data).
Really - go with index funds. My FA picked active funds and they didn't do well through good and bad times.

Index funds are popular here because they do well. And don't do business with family. It is a terrible idea.

NotWhoYouThink
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Re: Finally going to invest, brother is FA

Post by NotWhoYouThink » Thu Feb 01, 2018 8:07 pm

Everyone here will say three fund portfolio (or something ideologically similar) and I see how that’s a good conservative choice for long term wealth accumulation.
The tone of this sentence makes it sound like the three fund portfolio is something someone with no particular skill or ambition would settle for if he couldn't think of anything more creative to do. That's the way a FA who was trying to sell you on actively managed fund in an EJ account would put it.

Stick around, read the wiki and some of the suggested readings until you can hold your head high and say that a 3 fund portfolio is backed by a lot of research, theory, back-testing and analysis, and is a better risk-adjusted solution than almost anything a paid advisor can offer. And mean it.

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